Friday, 15 December 2006
Social Welfare Bill 2006: Committee and Remaining Stages
——benefits for older people such as contributory and non-contributory pensions, carer's allowance and fuel allowance are extremely well deserved. Will the Minister tell the House how much is spent on contributory and non-contributory State pensions? I believe it is approximately €2.4 billion or €2.5 billion. I will focus on the relationship between this and what we forgo in tax in respect of occupational pensions. I believe this figure is approximately €3 billion. As I stated previously, if we did away with tax relief on private pensions in the morning, we could double State benefits overnight. I know this will not happen and I do not advocate it. This is because, as the Minister previously told me, fewer people would take up private pensions because they would not receive tax relief, a point I accept.
However, my point is that we forgo a considerable amount of tax, approximately €3 billion, in respect of private pensions. Does the Minister believe this is good value for money? I do not believe it is. The majority of pensioners are still dependent on the State pension. Thankfully, this is now a reasonable amount. Why are the majority of people still dependent on the State pension for their income when we spend €3 billion on tax foregone in respect of private pensions? There is something very wrong with this system and this should be addressed by carrying out a cost benefit analysis of the tax we forgo. If this money were not given out in tax relief for private pensions, we could spend much of it on old people and benefit more people to a greater extent.
We know that tax forgone on occupational pensions goes to the better-off who are well able to look after their pensions and probably have other financial interests, such as properties. It is a question of value for money. Could the Minister give the House his opinion on the value for money we receive from expenditure on State pensions vis-À-vis tax forgone on private pensions?
We are dealing with section 3, which concerns pensions. The contributory State pension cost us €2.4 billion this year. This is up 57% on the previous year's expenditure, which was €1.5 billion, so the cost of paying the State pension is quite significant. The cost of the non-contributory State pension next year will be €810 million. I do not have the figure for tax forgone, but it is in the order of €3 billion. The Senator's argument still holds nevertheless.
Senator Terry knows I still hold the view that, although we have made some progress, pension reform is essential. The concept of mandatory cover is one of the items I have raised and it will be examined in the Green Paper. The Senator has expressed her concern to me many times about the security of people's funds and the professionalism with which they are invested is a critical factor. As I told the Senator yesterday, I must rely on the Pensions Board to police this area. The Green Paper will rehearse many arguments concerning the prudence principle and how to ensure people's money is properly invested and secure.
In respect of value of money, to put it very simplistically, and I know the Senator is not advocating it, one could simply double the State pension and remove all need for private pensions. Ideologically, I would have a problem with this in the sense that the State now takes on everything. I do not think this is necessary. I do not have the percentage, but the bulk of this tax relief is given at the higher rate or certainly to people on higher incomes so there is a pattern of middle and higher income people providing themselves with pensions.
The Minister of Finance put a cap on the value of an individual's pension fund which may attract tax relief, which is the amount in the individual's pension fund on 7 December 2005 or €5 million, whichever is the greater. This will be adjusted annually from 2007. If the fund is greater than the limit, tax at 42% will be charged on the excess when it is drawn down from the fund. The maximum tax-free lump for pension drawdowns made on or after 7 December 2005 will be €1.25 million. The balance of a lump sum greater than this amount will be taxed at the marginal rate as income. The restriction applies to a single lump sum or, where more than one lump sum is drawn down, the aggregate value of those lump sums. The lump sum will also be adjusted from 2007 onwards.
It is predicted that the labour force will remain static up to 2050 while the population of older people will treble. It is against this background that we must go down the road of pension reform. The Green Paper will be published at the end of March. It will look closely at the contributory and non-contributory State pensions, how they interact with occupational pensions and how we can have a good first pillar and a second pillar, that being occupational pensions. I do not think one would have as many people covered by pensions today if they had not been given tax relief.
One suggestion from the Pensions Board was that we introduce an SSIA-type arrangement under which, instead of tax relief, the Government would give matching funds, as happens with SSIA accounts. It has been argued that this would attract more people, especially those on the lower rate, to pensions because they would better understand the matching and it would be more transparent than tax breaks. This option, which has considerable merit, will also be examined in the context of the Green Paper.
I also think the mandatory system has some considerable merit and must be looked at. When PRSI was introduced, it was mandatory, and still is, for those who work. We are well used to the concept of ensuring people provide for themselves. This week, I extended PRSI to people on farm assist, which again is mandatory. People in this category are required to make this payment, but it gives them a very good pension.
Value for money is subjective. I am sure that if we did not have tax relief, whole swathes of the population would not have pensions cover, which would be bad for the country and the people themselves. The question of whether the money could be better used is a judgment issue. I would like to ensure tax relief is pushed down the line and taken up by people on lower incomes, but this is possibly where the SSIA-type reform will come in. We must make all these decisions in the context of the March Green Paper.
The Minister said he wished pensions were taken up by more people on low incomes. I disagree with this because they get very bad value for money if they take out pensions. They only receive tax relief at the lower rate as against individuals on the higher rate, so there is inequity in that. If the Minister were prepared to give them tax relief at the higher rate and afford them equity, it could be considered worthwhile.
How can somebody on a low income who is outside the tax net or who pays the lower rate of tax afford to pay into a pension scheme when he or she is probably struggling to save for a house, which is what he or she should be doing, or if he or she cannot afford to buy a house, is struggling to make ends meet? It is difficult to understand why we are spending large amounts of money trying to encourage people on low incomes, who are either paying tax at the lower rater or are outside the tax net altogether, to pay into pension schemes. The people to whom I refer — approximately 700,000 of them are outside the tax net — cannot afford to make such payments and are getting bad value for money.
People on the lower rate of tax may pay into pension funds when they are younger. Such money is, after all, only tax deferred, which causes some confusion because there are those who believe that it is tax relief and that they will never be obliged to pay it back. They will have to do so when they are drawing it down. They draw down this money at the top rate. We must ensure, therefore, that people are aware of what they are doing. Some individuals do not realise that they might obtain tax relief at the lower rate but that they will pay at the top rate when they are drawing it down. I have received many complaints to the effect that we should inform people of their rights. I have also received representations regarding the best way of doing things.
I understand the Minister is heading down the mandatory route in respect of pension contributions. I am, for some of the reasons I have already outlined, extremely concerned in this regard. It would be wrong to take the mandatory route. Would it be constitutional to impose a mandatory regime? Many people have already been obliged to pay into pension schemes because it was company policy to do so. These individuals were either forced to make contributions to such schemes or their employers did so on their behalf. Either way, this proved a benefit for the employers. People expected that making such contributions would deliver pensions for them but this did not prove to be the case. How constitutional is it to oblige people to make mandatory contributions?
I hope the Minister does not take the mandatory route. If he does, however, people should retain the right to opt out. This would at least give people the right to decide whether paying into pension schemes is the right way to spend their money. In circumstances where employers make pension contributions on behalf of employees, the latter might prefer to opt for increases in salary instead. An opt-out clause must be included in respect of mandatory contributions, unless guarantees are provided that people will receive pensions in the amount they would expect when they retire. If there is no opt-out clause and no guarantee of outcome, we should not proceed down the mandatory route.
The Minister referred earlier to an SSIA-type arrangement in respect of pensions. We debated pensions approximately two and a half years ago and his suggestion in this regard was discussed at that point. The Minister is correct that many people do not understand or recognise the benefits of money being invested on a tax-free basis and being drawn down the same way. If we were to repackage it we would obtain better value for money because people would understand what is on offer to them from a pensions point of view. The Minister's point in this regard is valid.
I thank Senator Cox for her remarks. I accept Senator Terry's concerns in respect of this matter. However, I am obliged to face the reality that there are 900,000 people who do not have occupational pensions. Of these, 500,000 are women who work. It behoves all of us to find some way to move these people to a position where they can look forward, when they retire, to income that will be additional to the State pension.
Leaving aside whatever will be decided following the process relating to the Green Paper, the only option available to the people to whom I refer under the current system is to enrol in pension schemes. To do this in a structured way and to ensure that people save money, the PRSAs are in place and offer possibilities. I accept that there are risks involved. However, it is better to be covered, have a pension, use the tax relief and work to ensure that one has as many protections in place as possible.
On guarantees, I spoke with Lord Turner about the system that applies in the UK. The new mandatory savings scheme there comes with a form of guarantee that people will get back a sum equivalent to what they invest plus a certain percentage.
I cannot accept Senator Terry's general thesis that pensions are bad value.
The Minister should say that to pensioners who have deferred or frozen benefits. He should compare the income of a pensioner who has been retired for ten or 20 years with that of a civil servant. If he does so, he will get an indication of whether it is good value for money.
Many of the modern schemes, particularly the PRSAs, are finely tuned. If people begin making contributions when they are sufficiently young and in light of tax relief and the purchasing of annuities, there is quite an amount of scope involved. The alternative would be to go completely down the State-funded road and give everyone in the country a State pension. That is a major philosophical debate in which we would be obliged to engage and I hope we may do so in the context of the Green Paper.
In the meantime, I must deal with matters as they stand. In that regard, I take the view that it is better to have pension provision and work towards ensuring that this is as secure as possible and that people obtain the best possible returns. I accept that many people are making their own arrangements by investing in property, apartments, etc., which is quite legitimate. However, I must give a great deal of consideration to ensuring that the 900,000 working people to whom I refer have in place some pension provision when they reach 65 or 66 years of age.
If we moved to an SSIA-type of contribution system, it would take account of that argument. Tax relief would not be needed because a matching amount would be paid. That is why the Pensions Board made its relevant recommendation, which has a great deal going for it. The Senator's point is interesting because if a person on €30,000 per year cannot afford a pension, someone on €15,000 will not be able to do so either.
I was hoping to put forward an amendment in respect of parental and paternity leave. We discussed this matter on Second Stage. Now that maternity leave has been extended to 26 weeks — people can also take unpaid leave — and there is to be increased maternity benefit, the next step in nurturing families is to consider the issue of paid parental leave. The Minister will be aware that either parent can take up to 13 weeks unpaid parental leave per child under the age of eight. We must focus and set a target for whatever Government and Minister will be in place next year. We must make a commitment to parents and children that there will be a benefit associated with parental leave. As I suggested to the Minister on Second Stage, we could commence the process by providing four weeks paid leave for either parent. In other words, one parent could take two weeks paid parental leave and his or her spouse or partner could take the other two. People have a right to parental leave but my concern now is to ensure they are given an entitlement to benefit.
On Second Stage, the Minister was asked whether he would consider allowing parents to share the maternity leave entitlement. That would be a retrograde step and I am sure the Minister will not even contemplate it. A situation cannot be allowed to arise where mothers would lose any of their entitlements. I support giving fathers more opportunities to be involved in the parenting of their children, particularly those of a very young age. That must be done as an add-on to maternity benefit, not by way of dividing that benefit between the mother and father. To do that would be to regress to the dark ages. While I understand the sentiments behind the idea as presented, I hope the Minister will never consider such a move.
I reassure the Senator on the last point. Employers are not obliged to grant male employees special paternity leave, paid or unpaid, following the birth of a child. Unpaid parental leave is available. Paternity leave for three days at 80% of wages subject to a minimum of €207.80 and a maximum of €280 per week would cost €6 million rising to approximately €10 million for five days' paid leave. That is based on the assumption that all fathers would take up the leave and that 95% would be paid at the higher rate. The Minister for Justice, Equality and Law Reform would have to introduce the necessary legislation as it would come under his jurisdiction. Parental leave entitles both parents to qualify to take up to 14 weeks' unpaid leave in respect of children aged up to eight years. Much of this legislation comes from the European Union and no doubt in future we will have to examine this area probably in the context of European directives.
It would be nice to have paid paternity leave. A cost of €6 million, rising to €10 million if all the men were to take it up, seems small in the context of the overall social welfare budget in which €1 of every €3 spent by the Government goes to social welfare benefit.
The real issue is the parental leave per child. The case for that is to allow the child be looked after in his or her home for the first year of his or her life. We should add 13 or 14 weeks with an element of pay to the 26 paid weeks' maternity leave. The first couple of months after the six months of paid benefit are not too expensive, but as time goes on and the child grows, it is difficult to choose to stay at home with no support from the State. The carer's leave and benefit provide a model for this benefit.
We have made many changes to parental leave in recent years, driven by Europe, but with an economy such as ours we should lead the field in the area of parental leave and care for children. This would make a statement about our country. We should not have to wait for EU directives but say we accept that it is better for a child to stay at home and that we want to facilitate parents and families in doing that by phasing in a benefit for unpaid parental leave. We cannot do everything at once but we need to set down a marker in this House that we have done so much and must look to future challenges.
I welcome the extension of the maternity leave and hope it continues to widen. I agree with Senator Cox that we must work towards enabling as soon as possible a mother to have one year at home with her child.
The male member of Fine Gael who said yesterday that the mother and father should share the maternity leave spoke with the best will in the world. He was saying that men want to take their responsibilities seriously but in hindsight, he would agree that the benefit should not be given at the mother's expense. We should consider providing paternity leave or paid parental leave which would allow the mother or the father to avail of that time with the child.
We need to move more quickly to extend the paid period for which a parent is at home with his or her child. Only certain people can afford to take the unpaid maternity or parental leave. Many parents who cannot afford to take unpaid maternity leave struggle in low-paid jobs. We hope that everyone will be put on an even footing such that all can avail of this benefit and receive payment to spend valuable time with their young children.
Two working groups of the social partners established under the Programme for Prosperity and Fairness examined this issue in reviewing the Parental Leave Act 1998, the report of the working group on the review of the improvement of the maternity protection legislation of 2001 and considered a proposal from the ICTU, the Equality Authority and the National Women's Council of Ireland that legislation should provide for a five-day paid paternity leave on the birth of the child, to be paid on the same basis as maternity benefit. The proposal was discussed and the following issues taken into account: the comparative situation in other EU member states, force majeure on paternity leave, reconciliation of work and family life, the balanced participation of men and women in work and family life, and the cost to employers. Both working groups stated that they recognised the importance of the role of fathers at the time of and immediately after the birth of the child. They could not, however, reach a consensus on the proposal and no recommendation was received for it to be progressed. That happened a couple of years ago and the discussion has probably advanced since then.
This section increases the length of time by four weeks and brings in a weekly earnings threshold of €350 and a new payment rate of €280 per week for maternity and adoptive benefits. I have a list of paternity leave benefits in other EU countries. In many countries some of the maternity leave is transferred to the father. For example, in Denmark the last ten weeks of the mother's leave may be transferred.
In Spain, the Netherlands and Portugal two days is transferred and in Greece one day. In most cases there is not a cash benefit but some other kind of benefit or allowance. The picture is somewhat unclear around Europe. We will keep the matter under review. We would need to ask that group to consider again what is possible because all the issues I mentioned, including the costs, would be factors.
I thank all Senators who took part in the debate yesterday and today. I also thank the Leas-Chathaoirleach and his staff. I extend a special word of thanks to my officials in the Department of Social and Family Affairs as the Social Welfare Bill goes for presidential signature. An enormous effort was required to get from the stage many months ago when we first examined what we might do in the budget. We had to get through the Estimates process, the budget and then incorporate the budget into the first of two Social Welfare Bills. My sincere thanks to all my officials, some of whom are here, and to the many others who also worked on this Bill for so long. Tribute has been paid to them from all sides of the House and in the Dáil on many occasions. This legislation is historic in that it introduces a number of reforms which will make a real difference to the lives of many people. Senators can be proud of the part they played in getting us to this stage.
I thank the Minister for the work he put into the Bill. He is lucky he is in the job at a time when there is plenty of money to give back to people. His predecessor made many cuts and the Minister, Deputy Brennan, has been playing catch-up since he came to the Department. We have been through the bad times and we are all very lucky there is money around now to give to people to make their lives a little better. However, many people remain who need further help. I thank the Minister also for the time he has spent in the House. I thank the staff involved in the Bill for all their work in preparing it. I can only guess the enormous effort required to examine every area of the Bill. I wish the Minister and his staff a very happy Christmas.
I pay tribute to the Minister, his Cabinet colleagues and the departmental officials who worked on the preparation of the Bill. It is indicative of the successful nature of this legislation that we moved through all stages of the Bill with the complete agreement of the House.
Although the social welfare package is worth in excess of €1.4 billion, in many ways it did not receive the attention it deserved. Far reaching reforms have been made in tackling child poverty. The Minister referred to this issue yesterday. A two-tier system of child benefit has been introduced without giving rise to an outcry about it being unequal. That is a significant achievement in itself.
I also welcome the reform in the area of women and pensions, in that women are now recognised in their own right. Increases in the old age pension will make a great difference to people's lives. Welcome change has also been made to maternity benefit and maternity leave. It was like manna from heaven when the Minister for Finance, Deputy Cowen, announced in the 2006 budget that maternity leave would be increased by four weeks paid this year and another four weeks paid next year. These are the types of reforms and changes that make a difference to people's daily lives.
When the Minister, Deputy Brennan, was appointed Minister for Social and Family Affairs he said he wanted to make changes; he did not want just to throw money at people. He has succeeded in his objective. I congratulate him on that. Social welfare expenditure accounts for €1 in every €3 of Government spending. While the increased spending is welcome, of most importance is the reform of the system. I recall the case of a young woman who could not receive a carer's allowance because she was in receipt of a widow's pension. I welcome the historic change that will address that anomaly.
I commend the Bill to the House. I am delighted to have been involved in the debate on it. On behalf of Members on the Government side of the House I wish the Minister and his officials a very happy Christmas. I thank the officials for their courtesy and assistance at all times.